Alphabet (Google) has seen a significant increase in its stock price this year, with a 26% gain year-to-date, outperforming the S&P 500 index. However, the stock is currently trading 6% above its estimated fair value of $168. Despite this, Alphabet’s stock has been on a roller-coaster ride, with returns of 65% in 2021, -39% in 2022, and 59% in 2023, underperforming the S&P 500 in 2022. Other tech giants in the Communication Services sector have also faced challenges in consistently beating the S&P 500, while the Trefis High Quality Portfolio has consistently outperformed the benchmark index, providing better returns with less risk.
In the first quarter of 2024, Alphabet exceeded consensus estimates, with revenues increasing 15% year-over-year to $80.54 billion. This growth was driven by a 28% increase in the Google cloud unit and a 13% gain in the Google advertising category. Total expenses as a percentage of revenues decreased, leading to an operating margin of 32%, a significant improvement from the previous year. Net income also rose by 57% year-over-year to $23.7 billion.
For the full year 2023, Alphabet’s top-line saw a 9% increase to $307.4 billion, driven by strong growth in various business segments including Google search & other, Google Cloud, and Google subscription, platform & devices. The operating margin slightly improved, resulting in a 23% year-over-year rise in net income to $73.8 billion. Looking ahead, consensus estimates for Q2 2024 revenues and earnings are $78.28 billion and $1.71 respectively, with full-year revenues forecasted to reach $327.60 billion.
The company’s net income margin is expected to improve in FY2024, leading to a net income of $84.7 billion, an annual EPS of $6.87, and a P/E multiple of just above 24x. This will result in a valuation of $168 for Alphabet. With the current uncertain macroeconomic environment, characterized by high oil prices and elevated interest rates, the question remains whether Alphabet will be able to outperform the S&P 500 in the next 12 months or face a similar situation as it did in 2022.
Alphabet has shown resilience in its financial performance, with consistent growth in revenues and net income. Despite facing challenges in stock price performance in previous years, the company has managed to deliver strong results in the first quarter of 2024 and is well-positioned for continued growth in the future. With a focus on expanding its cloud and advertising businesses, Alphabet is poised to capitalize on the growing demand for digital services and technology solutions.
Investors looking to capitalize on Alphabet’s potential for growth and strong financial performance can consider investing in Trefis’ Market Beating Portfolios, which have a track record of outperforming the S&P 500 index. With a strong portfolio of 30 stocks, Trefis’ High Quality Portfolio offers a diversified investment option that focuses on providing better returns with less risk, making it an attractive choice for investors seeking to maximize their investment returns.
